Your 54 bucks might get you a dinner out, a pair of jeans, a couple of sideline tickets to a Hawkeyes football game, or some fancy bottles of wine. But consider what it could have done for the state. The budget for fixing roads and bridges falls $215 million short of need every year. That especially riles state Sen. Joe Bolkcom, who chairs the Senate’s Ways and Means Committee. Not only could our little refunds take care of critical infrastructure repairs, but they’d create jobs in the process, points out the Iowa City senator.

But some benefits can’t just be measured on a dollar-for-dollar basis. The movies provide employment to local actors, construction crews, artists, caterers, drivers and a host of others. They expose non-Iowans to what the state has to offer. More intangible is the benefit of interactions in a state that can be cut off from the trends and centers of power. Not to mention the excitement factor. We’ve relied on caucuses every four years to bring action and celebrities to town. Now, sightings are anytime, any place.

Saturday, “The Experiment” had a wrap party downtown. Brody and Whitaker were there, mingling and posing for pictures. Frank Meeink was there. The Iowan who may have inspired the 1998 “American History X” has an acting role. Deb Cosgrove, the nurse, was there. She’s been tending to the medical needs of the film’s luminaries. Casey Gradischnig, local multi-media designer, was there. He’s been working for Whitaker.

Yes, this is the sort of critical infrastructure that we should be trusting our wise leaders to fund on our behalf, so we don’t blow it on football games or bottles of wine, or groceries or medicine — all of which “creates jobs” just as much as money given by politicians to well-connected contractors or filmmakers.

Ms. Basu says she is “tempted” to return her $54. Talk is cheap. If she really thinks the state can spend her money better than she can, she can write a check to “Treasurer, State of Iowa,” mark it as a donation to the state, and send it to the Department of Revenue, Attn: Courtney Kay-Decker, 1305 E. Walnut, Des Moines IA 50319. Otherwise, she reveals that she doesn’t really trust the state to spend “her” money; only other peoples’ money.

I would add that many strategies that might otherwise be unwise because of Alternative Minimum Tax, like prepaying state income taxes on big capital gains, become helpful in dealing with the net investment income tax.

Removing the league’s tax exemption would be a largely symbolic move that would raise little revenue and wouldn’t change much about how the league does business. Far more significant would be increased debate and transparency over publicly financed stadium construction and the tax favors that are doled out to keep teams from moving…

The trend toward market-based sourcing of revenue from services has been increasing over the past several years. Some states have adopted market-based sourcing by enacting legislation, and others have imposed it by interpreting their statutes and regulations to allow it.

Within a week of the Order, [founder “Fez”] Ogbazion was said to be engaged in discussions relating to the sale of the company, an activity that would appear to be barred under the injunction. Todd Bryant, General Counsel for ITS Financial, confirmed via email that “[a]n asset sale is being considered.”

It was a puzzle, though, as to who might be interested in purchasing the beleaguered company.

An insider, it turns out. TaxGrrrl questions whether that will work, given that the court order seems designed to destroy the company and salt the earth so it can never return. Judge for yourself (my emphasis):

Based on the foregoing, IT IS HEREBY ORDERED pursuant to I.R.C. §§ 7402 and 7408 that Defendants ITS Financial, LLC, TCA Financial, LLC, Tax Tree, LLC, and Fesum Ogbazion, and their representatives, agents, employees, attorneys, and/or any person or entity acting in active concert or participation with them, are PERMANENTLY ENJOINED from directly or indirectly, by use of any means:

A. Operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns; and, accordingly, Defendants ITS Financial, LLC, TCA Financial, LLC, and Tax Tree, LLC shall cease to operate; and Defendant Fesum Ogbazion shall cease operating, or being involved with in any way, any work or business relating in any way to preparation of tax returns;

B. Acting as tax return preparers; and/or acting or operating as a franchisor of businesses relating in any way to preparation of tax returns;

C. Supervising or managing or assisting tax return preparers; and/or owning, operating, or engaging in work or a business relating in any way to preparation of tax returns;

D. Assisting with or directing the preparation or filing of tax returns, amended returns, claims for refund, or other related documents;

E. Representing before the Internal Revenue Service any person or organization whose tax liabilities are under examination or investigation by the IRS;

F. Organizing, promoting, providing, advising or selling any business or work of tax services;

They seem to be looking for a loophole here by selling assets, rather than stock, though the injunction against “selling any business” would seem to cover that. I suspect the judge will make things clear in the coming days.

The owner of a Mo’ Money tax preparation franchise in St. Louis was sentenced to 20 months in federal prison on Tuesday after pleading guilty in July to conspiracy to commit tax fraud and aiding and abetting the preparation of false tax returns.

Jimi Clark, 57, of Memphis, Tenn., and four employees were arrested and indicted in October 2012 on one felony count each of conspiracy to commit tax fraud. All were accused of falsely claiming educational tax credits on at least 47 tax returns for 2009.

Refundable credits like the American Opportunity Credit and the Earned Income Credit are the fuel for the fraudulent return industry.

A recent FBI sting in California revealed that state Senator Ron Calderon may have taken up to $60,000 in exchange for pushing to lower eligibility requirements for California’s $100-million-a-year film tax incentive program. This isn’t the first time film incentives have been connected to corruption and scandal. Indeed, a scandal about misallocation of film tax credits ultimately led to the demise of Iowa’s program over the last few years.

Sometimes I think that Iowa’s Film Credit Program was just an elaborate “Bait Car” episode that ultimately didn’t run because the stealing was too easy.

David Henderson, Saez You: Income Distribution without Key Components of Income. It turns out one of the most-cited articles on income inequality leaves out a lot of income, particularly government transfers and welfare benefits. He notes notes, increased transfers are always advocated as a cure for inequality, and yet by the measuring stick used, it can never “help.”

According to the plan, passive income from overseas activities would continue to be taxed at U.S. rates. Most income from the sale of goods and services overseas would also be taxed at full U.S. rates. The draft would end the practice of deferral that allows firms to avoid U.S. tax on foreign earnings until they bring those profits home. However, income that is currently parked overseas would be taxed at a 20 percent rate payable over 8 years.

Baucus would move the U.S. closer to a territorial system favored by many multinationals and GOP lawmakers. Under such a system, income is taxed in the jurisdiction where it is earned rather than by the firm’s home country. While the plan does not fix a specific tax rate, staffers say Baucus is aiming to reduce the corporate rate from 35 percent to about 30 percent.

But in the Baucus plan, this shift closer to a territorial tax comes at a price. To limit the ability of multinationals to game the system, the plan would impose a stiff minimum tax on income earned overseas by foreign affiliates of U.S. parent companies.

Well, that’s reassuring. Tax Analysts reports ($link) that David Kirk, an IRS official involved in drafting the final rules on the 3.8% Obamacare “Net Investment Income Tax” that took effect January 1, says the rules are still “in flux” with filing season only two months away:

As for additional NII tax guidance, Kirk said the final regs will contain “overflow valves, breakers” that will allow the IRS to issue subregulatory guidance to address problems that arise, given that opening a new regulatory project “is a very painful and long process.”

“We’re just going to have to roll this out. We’re going to see how these rules work . . . and there’s always fine-tuning,” Kirk said.

They’ve had over three years to do this, and now “we’re going to see how these rules work”? Sounds like another recent Obamacare roll-out. It makes me really excited about the upcoming filing season.

The basic penalty is $95 in 2014—if you’re unmarried with no dependents and your income is less than $19,500. If your income is higher, you’ll owe more: 1 percent of the amount by which your income exceeds the sum of a single person’s personal exemption and standard deduction in the federal income tax. That’s $10,000 in 2013. But be warned: Income equals adjusted gross income (AGI—that number on the last line on page 1 of your tax return) plus any tax-exempt interest and excluded income earned abroad. If you make $30,000, your penalty will be $200.

Still with me? Good, because it is about to get more confusing.

If you like the penalty you have, you can keep the penalty you have. Until next year, anyway.

And what lies ahead? The perfect storm: The IRS and the ACA brought together by a hapless Congress that tasked the nation’s tax collector with administering portions of our new healthcare system.

…

I can see a day coming when a taxpayer gets a letter from her insurance provider canceling her healthcare coverage and then a letter from the IRS informing her that she owes additional taxes under the ACA. Apparently our government thinks that two nightmare bureaucracies must be better for us than one.

You think this is about “us,” friend?

Ron Isley is a lot better at music than he is at taxes. He has served time on federal tax charges, and yesterday he lost a Tax Court bid to get his back taxes reduced under an “offer of compromise” he agreed to, but which the IRS rejected before it became final. The ruling turns on a lot of technicalities involving the rules for accepting compromises in criminal tax cases.

The Tax Court decision wasn’t a total loss, in that they are allowing Mr. Isley to argue against tax levies and to pursue a compromise of his 2009 and 2010 taxes.

It could almost be a case in which one state adopted it on the grounds that it would create jobs and increase investment in the state. Then other states followed suit, not because single-sales-factor apportionment produced more accurate results, but because it was perceived as making a state’s tax laws more competitive or business friendly. But while single-sales-factor apportionment may benefit some businesses, it is far from being universally beneficial for taxpayers. In the end, if state officials are truly concerned with making their state more attractive to businesses, perhaps they should consider retaining — or returning to — the three-factor apportionment method and focus on a less burdensome corporate tax system overall.

Iowa was the first state to adopt single-factor apportionment. It applies to the highest tax rate in the nation, helping make Iowa’s corporation tax both onerous and useless. A repeal of the corporation income tax would be the best way of making the corporation tax “less burdensome.”

Relief for the traveling employee? Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013″ (S. 1645) was introduced yesterday. The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days. From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000. That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig — or more likely, saved the need to ignore the filing requirement.

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

Paul Neiffer, Crop Insurance Deferral Options. “When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.” Paul explains what the choices are if the recovery relates to a yield loss.

Wed in Iowa, still married in Utah. The IRS yesterday announced that same-sex couples married legally in any state will be treated as married for tax purposes, even if they reside in a state that does not recognize same-sex marriages.

The IRS also announced that couples that married in earlier years may amend their tax returns to claim joint filing status for open married tax years. However, they will not be required to. Couples who extended their 2009 returns have until October 15, 2013 to file amended 2009 returns. Otherwise, 2010 is the earliest possible open year.

The announcement cuts both ways. If the IRS says you are married, you no longer have the option of filing as a single taxpayer. Many couples find that marital bliss comes at a tax price. This chart from the Tax Foundation illustrates income situations where marriage can be more costly than single status:

The opportunity for same-sex couples to choose between single and joint status for open years is unique. This only goes one way, though; joint filers cannot amend their open years to file as single taxpayers.

Couples who have legal status short of marriage, such as “registered domestic partners” recognized in some states, are not considered married by the IRS.

The percentage of Americans who pay no federal income tax is falling, thanks to an improving economy and the expiration of temporary Great Recession-era tax cuts. In 2009, the Tax Policy Center estimated that 47 percent of households paid no federal income tax. This year, just 43 percent will avoid the tax.

That is good news, as far as it goes. It’s not healthy to have only a minority paying income tax, the primary funding source for big government. It’s too tempting to order a double when someone else is picking up the tab. Mr. Williams thinks that we should count payroll taxes like income taxes, but I agree with Robert D. Flach that they’re not the same thing.

Perhaps this isn’t the best way to handle an IRS exam. Tax Analysts reports ($link) on a taxpayer who alleged that an IRS agent coerced him into sex:

Burroughs had sex with Abrahamson in September 2011 when she arrived at his home “provocatively attired,” according to the suit. U.S. Magistrate Judge Thomas Coffin concluded in the July 31 decision that Abrahamson was not acting in her official capacity, because the encounter occurred at Burroughs’s home during nonwork hours and “not in respect to the performance of official duties of the federal employee.”

One survivor of an IRS exam told me that she felt the least the IRS owed her for the experience was drinks and dinner.

Mo’ Money franchise owner Jimi Clark, 57, of Memphis, Tenn., abused the American Opportunity Credit to attract and keep clients, prosecutors said. They filed for the credit on at least 47 returns where the taxpayer had not incurred any educational expenses, and unwisely, claimed the same amount of educational expenses, $3,765, on the “vast majority” of the returns, their indictment says.

In all, the 47 returns claimed more than $50,000 in educational credits.

[The] per capita tax burden on City residents is the highest in Michigan. This tax burden is particularly severe because it is imposed on a population that has relatively low levels of per capita income.

The City’s income tax… is the highest in Michigan.

Detroit residents pay the highest total property tax rates (inclusive of property taxes paid to all overlapping jurisdictions; e.g., the City, the State, Wayne County) of those paid by residents of Michigan cities having a population over 50,000.

Detroit is the only city in Michigan that levies an excise tax on utility users (at a rate of 5%).

But my opinion is that the official program is fabulous for someone who is in deep trouble and might otherwise face a spot of prison time. For that person, the “Your money or your life!” demand from the IRS is easy to answer. Give ‘em your money.

For almost everyone else, the voluntary disclosure program is stupidly expensive–in tax cost, penalties, interest, and professional fees to give the government all of the paperwork they want.

You gotta shoot the jaywalkers so you can slap the real crooks on the wrist.

The manufacturing innovation institute, meanwhile, is just another iteration of an idea that’s been around for longer than Barack Obama has. Go to any Rust Belt city and you’ll find research campuses, innovation institutes and similar institutions named after hopeful politicians who promised that a new manufacturing base would coalesce around this exciting agglomeration of creative minds. Unfortunately, in most instances it has turned out that manufacturing bases would rather coalesce around cheap land, low taxes and acres of uncongested freeway.

Marie Sapirie of Tax Analysts has an excellent piece about how the IRS offshore account enforcement program treats the thousands of ordinary Americans abroad — and many green card holders living in the U.S. — as presumptive tax criminals when they try to remedy foot-fault paperwork violations in reporting offshore accounts. She tells the stories of four “minnows” who tried to remedy inadvertent minor violations of the foreign account rules. Get a load of the advice they gave “Taxpayer 3:”

The taxpayer, like many others, sought help from a congressional representative in reaching a satisfactory resolution with the IRS. The response that the lawmaker received from the IRS — that the taxpayer could renounce U.S. citizenship — was disappointing. “I lived in the U.S. for 30 years; I never was treated unfairly for 30 years. I was proud of it. And here the IRS is telling me to renounce my citizenship because it may be the best solution considering my situation,” the taxpayer said.

When the IRS is telling people to expatriate themselves, something is very wrong.

The article discusses the headaches involved in clearing up FBAR reporting, including the delays caused because IRS agents aren’t allowed to make international phone calls.

The IRS should imitate programs for state non-filers for FBAR violations: allow taxpayers to come in penalty-free anytime if they file disclose their accounts and amend returns for five years back to report any unreported offshore income. Time to stop shooting the jaywalkers.

Rashia Wilson may have duped the IRS out of as much as $20 million before her arrest on stolen identity refund fraud charges.

That’s according to a court document, filed in advance of her sentencing today, that estimates the government’s loss at $7 million to $20 million.

What kind of criminal mastermind could break through the internal controls at IRS to loot that kind of money?

“YES I’M RASHIA THE QUEEN OF IRS TAX FRAUD,” reads a May posting on her Facebook page described in the affidavits. “IM’ A MILLIONAIRE FOR THE RECORD SO IF U THINK INDICTING ME WILL BE EASY IT WONT I PROMISE U!”

Well done, Shulman! Criminal masterminds like Ms. Wilson are robbing the Treasury of $5 billion annually, and you are busy telling taxpayers trying to come into compliance to renounce their citizenship.

Tax Justice Blog, North Carolina Facing Disastrous New Tax Laws. The “disatrous” changes include reduction of the individual rate to 5.75% (currently 7.75%) and the corporate rate to 5% (from 6.9%). If that’s a disaster, here’s hoping for one in Iowa.

Internal Revenue Service employees flagged for extra scrutiny fewer than a third of progressive groups applying for tax exemptions from mid-2010 through mid-2012, compared with 100% of conservative applicants, an IRS inspector general said.

The new data, released in a letter to Democratic lawmakers that was dated Wednesday, appear to support Republicans’ contention that conservative groups were subjected to more IRS scrutiny, and undercut Democrats’ case that the IRS treated left-leaning and right-leaning groups similarly.

Clearly, there is a problem at the IRS, a serious one. And that does not just apply to exempt organizations, which, frankly, have always been the third rail of national tax administration. What’s going on is not funny or entertaining. What’s going on means the country is in trouble.

While I am more easily entertained then Christopher, I agree with his conclusion.

This seems to me to be a very very bad idea. Creating payments for jobs not perfectly done implies a perfection that simply isn’t achievable in large institutions with multi-faceted functions.

OK, fine — but if it’s not achievable for a giant institution with enormous resources and all the time in the world, maybe it’s not achievable for small institutions with with “multi-faceted functions” and far fewer resources under severe time constraints — like your average business or your local Tea Party run by activists in their free time. Maybe the IRS shouldn’t so routinely assert penalties on audit deficiencies. Until they stop, though, I say sauce for the goose, sauce for the gander.

I get asked occasionally if a client can take the value of their time as a deduction. They’ve done the repairs on a rental house themselves and they want to deduct what they would have paid someone else to do it or they have worked for a charity and would like to use their time as a charitable deduction. Of course, the value of one’s time is not deductible.

With less than three weeks left in filing season, the US Federal Circuit Court of Appeals has denied the IRS attempt to overturn the injunction against their preparer regulation scheme. From the Wall Street Journal Total Return blog:

This doesn’t mean the IRS has permanently lost its case, but it does mean that the IRS cannot move forward with its power grab unless and until it convinces the appeals court that it has the authority to regulate preparers.

Meanwhile, filing season continues, with no evidence that taxpayers have been harmed by the availability of preparers who haven’t passed an IRS open-book exam on Publication 17.

Keith Rath, of Shellsburg, was arrested last week by IRS agents after a grand jury indicted him on eight counts of aiding in the preparation and presentation of a false tax return.

The indictment says that on eight occasions over the years 2008, 2009 and 2010, Rath helped clients falsely claim thousands of dollars in business income that he knew they did not earn.

Mr. Rath has pleaded not guilty.

You might wonder why anyone would claim business income they didn’t earn. The answer, of course, would be to claim refundable earned income tax credits. A taxpayer with no “earned income” is ineligible for the credit. The EITC is “refundable,” which means that when there is the credit exceeds the computed tax, the IRS will send you a check for the difference. By reporting imaginary Schedule C income, taxpayers can (illegally) increase their refund check.

In fact, the OECD itself recently issued a report – known as the BEPS report – on how these techniques create base erosion and profit shifting. The problem is so serious, according to the report, “What is at stake is the integrity of the corporate income tax.”

The “integrity of the corporate income tax” is in the third aisle next to the chastity of the bordello.

I will fight for the right to tax you to subsidize other people. Governor Branstad is touchy about criticism of the massive tax breaks for the Southeast Iowa Orascom fertilizer plant. Radio Iowa reports:

“I’m here to make it clear that the chief executive of this state is on your side and we will fight for these jobs and I want to make it clear that when we make a promise to Lee County — or to any county in Iowa for that matter — it’s a promise we’re going to keep, no matter what they might say in Des Moines in any committee meeting,”

Never mind the high possibility that the plant would have been built without our tax money. Never mind the moral problem of taxing existing businesses and taxpayers to lure and subsidize outsiders. Never mind that political allocations of investment capital are always and everywhere unwise. Forget the lost opportunities for taxpayers to spend the money on their own projects. Jobs!

The Governor also hinted at darker forces opposing the tax credits, reports KCCI.com:

And he said he believed the Koch brothers were behind some opposition to the plant because it would hurt their fertilizer business.

So Iowa Democrats opposing the subsidies are tools of the libertarian Koch brothers. Who knew?

Iowa’s top state personal income tax rate is 8.98 percent, compared to 13.3 percent in California. Probably not enough of an improvement to lure millionaires from Pacific Palisades to Dubuque. By contrast, Texas offers zero percent.

Earlier this year, Branstad said he would no longer pursue getting rid of Iowa’s corporate and personal income taxes. Instead, he’s going to focus on cutting property taxes.

Well, California’s property taxes already are fairly low thanks to Proposition 13. Although property prices here are triple those in Iowa and most other states because of our severe restrictions on building.

Bottom line: Iowa doesn’t offer enough incentives to attract many businesses and people to leave California. The Hawkeye State is the Golden State with bad weather.

Ouch. Well, Iowa’s solvent, too, unlike California, which is a fiscal disaster. We also have short commutes. Still, he makes a valid point: it’s not enough to compete with a basket case like California. Golden State refugees have plenty of places to choose from, many of which have better taxes, better weather, or both. I have no thoughts on fixing the weather, but The Quick and Dirty Iowa Tax Reform Planwould take care of the tax problems. With no corporate tax and a 4% individual rate, combined with good employees, education and quality of life, we’d see some Californians.

“Even though on the surface you’re looking at 35% versus 39.6%, it’s a deceptive comparison,” says Robert W. Wood, a tax lawyer with Wood LLP in San Francisco. “There may be a slight short-term advantage in C-Corporations, but there are a number of negative long-term implications that would outweigh short-term benefit.”

For example, C-Corporation profits can be double-taxed. In addition to the corporate tax on profits, owners also would owe personal taxes on any money they take out of the company as dividends. The double tax kicks in when a business is sold, too.

Another potential problem is that a firm that switches from an S-Corporation generally has to remain a C-Corporation for at least five years.

At current rates, a switch to C corporation format is probably still unwise, if tempting, because of the double tax issue. You might have lower tax up front, but getting the money out involves either paying a second tax on the dividends or expensive tax gymnastics, often involving renting to a corporation or potentially “excessive” compensation. C corporations are the Roach Motels of the tax world: they’re a lot easier to check into than check out of. But if there is a significant reduction in corporation rates, the current tax savings will be enough to tip the balance for many taxpayers to C corporation status, double tax or no.

The tax code, as most everyone knows and acknowledges, is ridiculously complex and getting more complex all the time.

When will the complexity cause the system to collapse? And what, exactly, will collapse?

I think it would require a combination of things to “collapse” the tax law. If the perception becomes widespread that it is impossible to comply with the tax law without unreasonable effort, or the rates get intolerably high, and technical advances allow for cash transfers and banking that the government can’t trace, then the game is over.

Tax Analysts is having a conference today on whether, after 100 years, the income tax has run its race.

Shock! David Osterberg doesn’t like the 4.5% flat Iowa Income tax proposal! State Tax Notes tracked down former Senate Candidate and Cornell College Econ Prof* David Osterberg for his views on the proposal to create a flat 4.5% income tax in Iowa alongside the current income tax. Not surprisingly, he doesn’t like it ($link):

The founder and executive director of the Iowa Policy Project said a Republican-sponsored House bill to create a flat personal income tax option would shift more of the tax burden to low-income residents.

But David Osterberg said he is not too concerned because he doesn’t think the proposal has a shot at passing the Senate, where Democrats hold a majority…The proposal is “part of this ideology that says we somehow have to take care of the top 1 percent and things will be good,” Osterberg said. “I don’t think low-income people believe that — we sure don’t.”

“Iowa’s current income tax system has nine brackets, with rates ranging from 0.36 percent of income to 8.98 percent of income,” Malm said in an e-mail to Tax Analysts. “In 2012, this made Iowa the fifth highest top income tax rate in the country, among those states that levy PITs.”

Without additional information, Malm declined to say whether the plan is regressive. She did say, however, that the proposal would fail to simplify the tax code because it keeps the current system intact.

“I’m guessing the rationale behind allowing taxpayers to choose between the two systems is to ease concerns that the flat 4.5 rate would hit low-income individuals harder,” Malm said.

Wrong guess. The rationale is almost surely to avoid provoking the powerful lobby group Iowans for Tax Relief, which holds sacred the current Iowa individual deduction for federal taxes paid. Proposing the flat tax as an alternative, rather than a replacement, finesses that problem — but at the cost of adding more complexity. In this form, the flat tax is what I call an “Alternative Maximum Tax.”

*Disclosure: I once borrowed his shotgun at Cornell. It had dust bunnies in the tubes.

No matter your views on government, there is no justification for asking the poor to pay more than the rich. I do not favor dramatically increasing the tax burdens on the wealthy, particularly income tax burdens. But there are a lot of policies that can be enacted that could even the playing field. Broader base consumption taxes, less reliance on excise taxes, and larger income exemptions for low wage taxpayers would go a long way.

We have seen considerable evidence of tax return preparers who do not understand the tax laws or who intentionally misapply them (in the home office deduction, etc.). It is imperative that those who assist others in preparing tax returns demonstrate minimal competency in the tax law as demonstrated by the qualifying exam.

The “qualifying exam” is open book — really more of a literacy test. The IRS can make preparers show they can read. They can’t make them competent. When you consider the Big 4 tax shelter scandals, and the hopeless complexity of the tax law, it’s funny to say that the problem is really “people who do not understand the tax laws.”

But not hotirsagent.com? I guess there really are stupid easy ways to earn internet money. A Kansan found one, but then got in trouble by not paying his taxes. KFDI.com reports:

Dallen Harris, 39, pleaded guilty to one count of tax evasion. He reported a taxable income of a little more than $164,000 in 2010, when it was actually more than $1 million.

Harris’ income came from Internet domain names, according to court ecords from a related civil forfeiture case in federal court. The government is seeking to forfeit Harris’ houses, cars and bank accounts in that case. The domain names included celebritysextape.tv, adultkingdom.net, Porntesters.com, hardcorefilms.tv, celebritynakedpic.com and sextape.com.

No, I won’t link to any of those. It doesn’t sound like they need any help generating traffic anyway.

Mr. Holtsinger entered a guilty plea last year. The indictment said he sold this improbable investment opportunity:

After conducting trades on behalf of investors for a short period of time, Holtsinger offered and sold investments to the investors in the form of promissory notes. He represented that the notes would yield high returns with no risk including, but not limited to, what he called an “inheritance investment” that would be invested through his mother and pay out upon her death. The “inheritance investment” required a $20,000 deposit and was to pay annual returns of 9% with automatic liquidation and payout if the investment dropped below 3% of its initial value.

“High returns with no risk” is a rare beast indeed, nearly as rare as the Unicorn. I doubt if they show up in Ottumwa very often.

IRS stimulates prison system economy by $35 million in 2010. From a report by the Treasury Inspector General for Tax Administration:

Refund fraud committed by prisoners remains a significant problem for tax administration. The number of fraudulent tax returns filed by prisoners and identified by the IRS has increased from more than 18,000 tax returns in Calendar Year 2004 to more than 91,000 tax returns in Calendar Year 2010. The refunds claimed on these tax returns increased from $68 million to $757 million. Although the IRS prevented the issuance of $722 million in fraudulent tax refunds during Calendar Year 2010, it released more than $35 million.

The new IRS regulation of tax preparers isn’t going to do much for this problem. (via the TaxProf)